Exam (elaborations)
RSK4803 Exam pack 2024(Questions and answers)
- Course
- RSK4803
- Institution
- University Of South Africa
RSK4803 Exam pack 2024(Questions and answers) With accurate answers and assurance that they are in the exam.
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RSK4803 EXAMPACK 2024
QUESTIONS AND
ANSWERS
FOR ASSISTANCE CONTACT
EMAIL:gabrielmusyoka940@gmail.com
, lOMoARcPSD|46589353
RSK4803 ASSIGNMENT 01
ASSIGNMENT 01 TOTAL [100 MARKS]
The assignment consisted of 6 questions. Students were alerted that they will be
penalised if not all the questions were answered. We have decided that a penalty of 2
marks (+ 5 %) per question will be appropriate. Mark allocation will thus be as follows:
Student achieved 100% for the marked questions, but did not answer questions 4 and
6. The student will thus be penalised with 4 marks, which will be subtracted from the
overall mark, and a maximum of + 90% will be allocated for the assignment.
Purpose
The purpose of this assignment is to assess your knowledge and understanding of the theory
of the module.
Please refer to Sections 1.5, 1.6, 1.7 and 1.8 to ensure that your assignment meet the editorial
requirements.
Question 1 [15 Marks]
Risk financing is an important component of the risk management process. To assist senior
management to formulate a risk financing strategy, they need to understand the risk financing
alternatives available and the cost of risk.
1.1. Evaluate the cost of risk concept in terms of the components and objectives in minimising
the cost of risk. (5 marks)
1.2. Discuss the components of the cost of risk. (10 marks)
Suggested solution
QUESTION 1.1. COST OF RISK CONCEPT
The cost of risk concept was developed as a measure to report results of the risk and
insurance management function. The components of the cost of risk consist of:
- Insurance cost
- Unreimbursed losses
- Risk control and loss prevention expenditure
- Administration cost
Downloaded by Gabriel Musyoka (gabudeking@gmail.com)
, lOMoARcPSD|46589353
RSK4803 ASSIGNMENT 01
Objectives in minimising the cost of risk
To minimise the cost of risk, the following should be considered:
- Adoption of a long term view of when cost to benefit trade off related to the levels of risk
control expenditure
- Risk control should be undertaken within the limits dictated by broad corporate financing
objectives and constraints
- Risk financing decisions should be taken with due reference to the investment decision
QUESTION 1.2. COMPONENTS OF THE COST OF RISK
Insurance costs
Direct insurance costs – directly related to the total of all insurance premiums.
Other aspects must be taken into account to determine the actual cost of insurance. These
include opportunity cost of the funds expended as insurance premiums. The tax
implications of premiums and claims, and the cost of capital relative to the value of the
expected claims.
Costs of statutory insurance – e.g. Worker’s compensation and unemployment insurance
but reduce the cost by claims recoveries.
Opportunity costs the rand value spent on insurance premiums that could for example, have
been spent on improving the production line or invested in the production process thereby
generating more profit for the firm. The opportunity of those additional profits is lost due to
having to spend the money on insurance premiums.
Unreimbursed losses – OR (self-insured, self-retained)
Can arise from the following:
Excesses provided for insurance policies.
Inadequate sums insured.
Breach of policy conditions or warranties contained in policies and the consequent
forfeiture of insurance protection.
Losses resulting from risks against which there is no available insurance cover, although
the risks are known.
Losses that are uninsured either intentionally or unintentionally.
Uninsurable losses.
The insolvency of the insurer.
Downloaded by Gabriel Musyoka (gabudeking@gmail.com)
, lOMoARcPSD|46589353
RSK4803 ASSIGNMENT 01
Risk control and loss prevention expenditure√
Includes the following:
Depreciation on major capital costs to reduce risk, e.g. depreciation following the
installation of a sprinkler system.
The cost of time consumed in the identification and evaluation of risk, including the cost of
outside consultants, if appointed.
Ongoing operational and procedural expenses for risk control measures such as security
guards, maintenance of fire equipment and cash carrying services.
Risk control training costs/seminars/courses.
Subscriptions to safety, security and risk management societies, journals, etc.
Management time taken up by risk-control and risk-financing (insurance) meetings.
Administrative expenses
Expenses include the following:
Clerical costs in handling of insurance matters.
Cost of handling self-insured losses.
The cost of reporting and investigating loss occurrences.
The cost of an in-house risk management department.
The cost of a risk management broker if applicable.
When considering these costs any business should aspire to achieve these three risk
management objectives:
Financial: to reduce the ratio of total cost-of-risk and to maintain the improvement over a
sustained period.
Resources: to conserve assets and preserve the physical health of employees through safe
working habits and safe working environment.
Customers and the public: to improve the enterprise’s image among the people it serves
through the reduction of accident-causing conditions that affect the product it makes and the
services it delivers.
Downloaded by Gabriel Musyoka (gabudeking@gmail.com)
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